Stadshypotek achieved what is said to be the tightest pricing for a seven year non-German benchmark since 2007 yesterday (Wednesday), with a Eu1bn deal bankers said demonstrated the strength of the market.

Stadshypotek parent Svenska Handelsbanken, Stockholm

A syndicate banker away from the leads described it as a “super trade”.

“It was a fantastic result for them, with the pricing of plus 9bp,” he said. “It looked very tight, but just highlights how strong the backdrop is.”

Leads JP Morgan, Société Générale, Svenska Handelsbanken and UBS priced the deal at 9bp over mid-swaps after having gone out with initial price thoughts of the low double-digits and then guidance of the 10bp area and built a book of more than Eu1.7bn comprising 70 accounts. The new issue premium was considered by market participants to be minimal.

According to a syndicate official at one of the leads, the deal is the tightest seven year non-German benchmark since 2007, while also being only the fourth Eu1bn plus covered bond out of the last 20 benchmarks.

“It was a very, very good trade,” said a syndicate official at another of the leads, “especially if you look at the outcome of Eu1bn at plus 9bp, which from an issuer’s perspective is a great result. Single-digits spreads are quite rare, especially in seven years, but we still see the Nordics enjoying quite a good safe haven bid.

“Clearly there was good interest in the trade, and on the back of the deals earlier this week it shows the state of the market these days, especially after the non-farm payrolls and the expectation that tapering will most likely be pushed back in 2014.”

Provisional distribution figure put Germany and Austria at 46%, the Benelux 14%, the Nordics 14%, UK and Ireland 12%, Asia 6%, Switzerland 4%, France 2%, and southern Europe 2%, while banks were allocated 69%, fund managers 15%, SSAs 8%, insurance companies 4%, pension funds 3%, and others 1%.

With attractive euro funding levels a factor in Stadshypotek’s decision to launch its deal, he suggested there could be further issuance from the Nordics before year-end.

“If you look at the relative cost of funding, it seems euros is very competitive versus Swedish kronor, and that also helped them pull the trigger,” he said. “They had also just announced their results, which beat expectations.

“And that in a risk-on context, albeit with some of profit-taking yesterday morning.”

Another banker agreed that selective profit-taking in peripheral names could well have helped and also bode well for further core supply.

“With the success of Stadshypotek in the core space and a potential brief weakness in market sentiment, other peer issuers should feel encouraged to step into the market and take advantage from a particularly strong bank ALM bid,” he said.

Another banker said that while conditions were tempting, other considerations could determine the level of supply in the coming weeks.

“Everyone’s watching the market,” he said, “but it is a question of looking at the senior level versus covered – which is very much in favour of senior – and also whether to do any funding at all. Everyone’s pretty well funded at this point in the year.

“They need to present the case for pre-funding internally, and it could be that the cost of carry makes it a bit early for them to do something, although going into November things could pick up.”